Author Topic: In A Pickle  (Read 2569 times)

Kcinegnet

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In A Pickle
« on: February 06, 2020, 01:20:23 PM »
I have recently sold off my investments in my casual TD Ameritrade & Robinhood accounts(Not IRA accounts) to fund a down payment on a duplex with an FHA 3.5% down loan. My original goal was to househack for a couple of years until I had enough for another down payment. However, things changed.

After months of searching for properties in the Greater Twin Cities area, I have found nothing, unless it is way overpriced. And even the overpriced homes need lots of renovations. Given the housing market is so hot (and will likely stay hot) and stock market booming... What would you do? Do I stay cash for a larger down payment? Invest back in the market? Rent for another year and hope the market cools off?

I am leaning towards buying a small single family home to learn basics of homeownership. In the process doing an Air BnB while renting a room for cheap to my brother in the mean time & hoping to have another small down payment by the time the market crashes next time. Wondering if others have any ideas?
« Last Edit: February 06, 2020, 01:26:46 PM by Kcinegnet »

RWD

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Re: In A Pickle
« Reply #1 on: February 06, 2020, 01:51:08 PM »
Well I wouldn't be particularly worried about the stock market or try to wait for a crash (see below). Though the generally accepted wisdom is the keep money in cash that you expect to need within a few years (to ensure the principal). So the question becomes will you want this money to be available within a few years?


1/2013  [SP500 = 1462]
https://forum.mrmoneymustache.com/investor-alley/is-now-a-bad-time-to-invest-in-stock-index-funds/
5/2013  [1583]
https://forum.mrmoneymustache.com/investor-alley/starting-today!/
https://forum.mrmoneymustache.com/investor-alley/$80k-sitting-in-cash-bc-scared-of-high-flying-stock-mkt-punch-me/
10/2013  [1695]
https://forum.mrmoneymustache.com/investor-alley/stock-market-expensive-now-alternatives/
5/2014  [1884]
https://forum.mrmoneymustache.com/investor-alley/stock-market-is-high-am-i-too-late/
https://forum.mrmoneymustache.com/investor-alley/is-the-stock-market-too-expensive-to-get-back-in/
7/2014  [1973]
https://forum.mrmoneymustache.com/investor-alley/current-market-has-me-scared-to-invest/
9/2014  [2002]
https://forum.mrmoneymustache.com/investor-alley/is-it-a-good-time-to-invest-new-money/
10/2014  [1946]
https://forum.mrmoneymustache.com/ask-a-mustachian/stock-market-would-you-buy-now-or-wait/
1/2015  [2058]
https://forum.mrmoneymustache.com/investor-alley/stock-market-should-i-be-concerned/
3/2015  [2117]
https://forum.mrmoneymustache.com/investor-alley/talk-me-out-of-timing-the-australian-market/
12/2015  [2103]
https://forum.mrmoneymustache.com/ask-a-mustachian/where-to-put-a-large-windfall-with-stock-market-near-all-time-highs/
1/2016  [2013]
https://forum.mrmoneymustache.com/investor-alley/about-to-sell-everything-talk-me-off-the-ledge-(or-push-me-off)-please!/
4/2016 [2073]
https://forum.mrmoneymustache.com/investor-alley/here-it-comes-red-dow/
2/2017  [2280]
https://forum.mrmoneymustache.com/investor-alley/does-anyone-think-we-are-in-a-bubble/
4/2017  [2359]
https://forum.mrmoneymustache.com/investor-alley/top-is-in/
6/2017  [2430]
https://forum.mrmoneymustache.com/continue-the-blog-conversation/recession-coming/
8/2017  [2476]
https://forum.mrmoneymustache.com/investor-alley/getting-scared-of-stock-market/
1/2018  [2696]
https://forum.mrmoneymustache.com/investor-alley/nervous-about-the-market/
3/2018  [2678]
https://forum.mrmoneymustache.com/investor-alley/when-would-you-get-back-in/
5/2018  [2655]
https://forum.mrmoneymustache.com/investor-alley/investing-in-a-bull-market/
6/2018  [2735]
https://forum.mrmoneymustache.com/investor-alley/moving-to-cash-market-timing-can%27t-believe-it/
10/2018  [2925]
https://forum.mrmoneymustache.com/welcome-to-the-forum/sell-index-funds-now-for-down-payment-during-recession/
2/2019  [2707]
https://forum.mrmoneymustache.com/investor-alley/welp-i'm-going-to-take-a-stab-at-timing-the-market/
4/2019  [2867]
https://forum.mrmoneymustache.com/investor-alley/buy-vtsax-now-while-its-this-high-or-wait-till-a-drop/
https://forum.mrmoneymustache.com/investor-alley/how-concerned-are-you-about-the-everything-bubble/
5/2019  [2924]
https://forum.mrmoneymustache.com/ask-a-mustachian/scared-of-investing-in-the-stock-market-now/
6/2019  [2890]
https://forum.mrmoneymustache.com/uk-tax-discussion/global-index-tracker-is-so-high!-do-i-just-keep-putting-my-money-into-it-anyway/
7/2019 [3026]
https://forum.mrmoneymustache.com/investor-alley/would-you-106836/
8/2019 [2889]
https://forum.mrmoneymustache.com/investor-alley/vtsax-and-a-looming-recession/
9/2019 [2978]
https://forum.mrmoneymustache.com/investor-alley/recession-in-2-ish-years-scale-and-nature/
10/2019 [2986]
https://forum.mrmoneymustache.com/investor-alley/advice-needed-108726/
11/2019 [3110]
https://forum.mrmoneymustache.com/investor-alley/questions-from-37yr-old-that-very-recently-became-serious-about-fi/
https://forum.mrmoneymustache.com/investor-alley/where-to-invest-my-cash-now/
12/2019 [3169]
https://forum.mrmoneymustache.com/ask-a-mustachian/help!-i-dont-know-where-to-start/
https://forum.mrmoneymustache.com/investor-alley/the-old-excuses-for-down-swings-and-a-reality-yet-we-are-at-all-time-highs!/
1/2020 [3296]
https://forum.mrmoneymustache.com/investor-alley/what-to-do-with-a-large-sum-of-money-bad-time-to-buy-index-funds/
2/2020 [3345]
https://forum.mrmoneymustache.com/real-estate-and-landlording/in-a-pickle/

Miscellaneous
https://forum.mrmoneymustache.com/investor-alley/%27but-right-now-the-market-is-at-an-all-time-high-%27/
https://forum.mrmoneymustache.com/investor-alley/the-great-market-crash-of-2016!/
https://forum.mrmoneymustache.com/investor-alley/how-to-deal-with-losing-$117k-in-stock-market/
https://forum.mrmoneymustache.com/investor-alley/so-we're-basically-on-track-for-a-bear-market-by-tomorrow/
https://forum.mrmoneymustache.com/investor-alley/anyone-else-feeling-depressed-about-global-equities-10-year-outlook/
https://forum.mrmoneymustache.com/investor-alley/stocks-will-only-return-4-annually-for-next-decade-john-bogle/

waltworks

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Re: In A Pickle
« Reply #2 on: February 06, 2020, 09:27:03 PM »
If it's a way better deal to rent, keep renting. You don't need to "learn" how to own a home. It's not hard.

If you're uncomfortable with the prices and the deals, don't buy anything. Pretty easy.

-W

clarkfan1979

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Re: In A Pickle
« Reply #3 on: February 08, 2020, 04:26:30 PM »
I have a rental house that doubled in value in about 12 years. The rent also doubled during that time. It's actually a slightly better rental now because my expenses are now a smaller percentage of my rent. My taxes went up 35%, materials went up 50%. Labor might have gone up close to 75% as a new customer. As a repeat customer, most of my independent plumbers and electricians charge the same hourly wages as 12 years ago.

Lucky13

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Re: In A Pickle
« Reply #4 on: February 08, 2020, 05:25:51 PM »
So you sold off your assets without first verifying that the house-hacking duplex plan was financially feasible?  Of you ran the numbers, but then something changed? Typically people don't sell off until they are actually in escrow... unless you needed to show the cash in order to get approved for a loan.  My only suggestion would be to expand your radius to locations farther from the city center, but if its still too expansive you may just need to come up with another plan. (waiting for another housing market crash doesn't sound like a great idea, 2008 was an unusual event, it could be another decade or two before that happens again, if ever)

Dicey

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Re: In A Pickle
« Reply #5 on: February 10, 2020, 06:57:10 AM »
Sorry, you sold off stocks to amass a mere 3.5% down payment in an at-most MCOLA? You do not have the resources needed to pull this off. I'm with Walt, only I'll be more blunt: Hell No!

Rather than waiting for a "crash", it would be better to wait until you can actually afford what you propose. Underfunded people who attempt stuff like this are exactly the folks who lose when the market dumps.

BTW, all the box stores offer free classes, and they don't check for home ownership at the door. There are even some junior colleges that offer classes, and there's always volunteering for Habitat for Humanity. There are also non-profits that offer low-cost classes and workshops. All are virtually free ways to learn, especially compared to the path you're proposing. Learn, save, then buy.

Also, take a dive into this thread before you begin. Understanding this concept could also save you a bundle:

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/

Kcinegnet

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Re: In A Pickle
« Reply #6 on: February 10, 2020, 02:05:14 PM »
Let me put this into a clearer picture. I am 24 Y/O with a stable job and want to break into RE & landlording.

I've ran the numbers several times. It will work. Perhaps I am nervous about buying (from what we know) as a peak.

Option A: Buy duplex & rent out other half while paying roughly $400 to cover mortgage out of my own pocket.

Option B: Buy SFH, rent 2 rooms out to brothers (1 will be receiving military housing assistance) and charge myself extra to fund a new down payment for when the crash actually happens. In this case mortgage = $1100 with Income= $2200. I keep hearing about deals being made at purchase. In this market, it worries me.

Option C: Screw it all and keep renting and saving to use 20% conventional at next crash.

I do not care if "I do not have adequate resources" but am more interested in how I will make it work.

@clarkfan1979 Would you ever buy at a market top if you had the same thoughts that home prices & rents will continue to increase? Perhaps I just need to take action.

Mustache ride

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Re: In A Pickle
« Reply #7 on: February 10, 2020, 04:52:23 PM »
Fine, how will you make it work? Keep renting and saving for a down payment until you can afford it.

waltworks

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Re: In A Pickle
« Reply #8 on: February 10, 2020, 09:25:09 PM »
So wait, will "it work" or is everything "way overpriced"?

You're 24. There is no rush. Selling everything off was probably a little silly - patience is a virtue. Deals will come along at some point. Keep renting and socking away savings. Don't sell investments unless you have a *specific* use for the money and you are ready to put it to work.

Many of us (including Clarkfan) got lucky in the last crash. If you're patient, you'll eventually find opportunities. If you're not patient... someone will buy your foreclosed home for a steal and be FIRE, while you're back to square one.

-W

Villanelle

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Re: In A Pickle
« Reply #9 on: February 10, 2020, 09:34:14 PM »
Let me put this into a clearer picture. I am 24 Y/O with a stable job and want to break into RE & landlording.

I've ran the numbers several times. It will work. Perhaps I am nervous about buying (from what we know) as a peak.

Option A: Buy duplex & rent out other half while paying roughly $400 to cover mortgage out of my own pocket.

Option B: Buy SFH, rent 2 rooms out to brothers (1 will be receiving military housing assistance) and charge myself extra to fund a new down payment for when the crash actually happens. In this case mortgage = $1100 with Income= $2200. I keep hearing about deals being made at purchase. In this market, it worries me.

Option C: Screw it all and keep renting and saving to use 20% conventional at next crash.

I do not care if "I do not have adequate resources" but am more interested in how I will make it work.

@clarkfan1979 Would you ever buy at a market top if you had the same thoughts that home prices & rents will continue to increase? Perhaps I just need to take action.

So the duplex would net you about $400/mo and the single family would net you $1100?  How reliable are the brothers and how long are they willing to commit for?  Unless there is some other wrinkle, that seems like the clear winner. 

No, I would never buy at a market top no matter what.  So the moment I can actually know when that is, I will act accordingly.  But until my crystal ball gives me a vision, I just ignore that, and that's true whether we are talking real estate or equities. 

clarkfan1979

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Re: In A Pickle
« Reply #10 on: February 16, 2020, 07:35:28 PM »
Here is my 2 cents.

Buy a 4 bed/2 bath and get 3 roommates to make it work. Make sure there are no city restrictions on having 4 non-related people living in one house. Because you are looking for roommates, you have a different set of rules for housing discrimination. I would target young professionals that spend most of their time at work.

I would like you to demonstrate that you have some grit. For that reason, I agree with the other posters that you should wait until you have enough for 20% down. If you take a 2nd job or get a side hustle, you should be able to come up with the money in 12-18 months. Pay the minimum on your student loans during this time (if you have them)

You are 24 and your hustle should be an asset at this point in your life. I'm not that worried about 20% down as financial security, but more as showing that you have some guts.

No one knows when we are at the top of the market, including myself. You buy when it makes sense for you. I was living in San Diego in 2004-2006 while completing an MA program. In 2006, I was applying to Ph.D. programs. I could have stayed in Southern California, but I wanted to buy a house and get roommates to pay the mortgage. In Southern California, this would have been a stretch.

Instead, I made a conscious decision to move to Fort Collins, CO in 2006 and bought a house in May 2007. Fort Collins real estate was pretty flat from 2002 to 2006 in comparison to the rest of the country. I was not trying to time the market. I was just trying to find something that made sense for me. I bought for 182K and made 10K of repairs. Original mortgage was $1,050. I did a re-fi in 2009 and lowered it to $950. I rented 3 rooms at $350 each. These numbers are not sexy, but good enough to make it work on your first deal and learn how to be a landlord.

Walt considers this success to be dumb luck. I think it was more of a conscious decision to put myself in the best position to be successful. If I bought in Southern California in 2004-2006 and somehow made it through the storm, I think that would have been dumb luck.

I also put a premium on location, which can sometimes make your rental numbers look worse. I bought a house 1/2 mile away from Colorado State University. I could have gotten slightly better initial numbers by buying something 2 miles away from campus. However, renting rooms would have been more difficult with less demand being farther away from campus.

In 2017, I was on the MMM forum looking for ideas on how to boost my net worth with real estate. I got mostly negative feedback stating that all real estate is at an all time high. Despite the lack of encouragement, I purchased a foreclosure in Hawaii on the island of Kauai for 603K in June 2018. I made 50K worth of repairs and it is now worth about 800K. The deal went well, but the important part is that I had enough reserves even if the deal did not go well. If I tried to do something like this on my first deal, it would have been a bad idea.

In the end, the answer is "it depends"










 




Monerexia

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Re: In A Pickle
« Reply #11 on: February 16, 2020, 07:43:14 PM »
Sorry, you sold off stocks to amass a mere 3.5% down payment in an at-most MCOLA? You do not have the resources needed to pull this off. I'm with Walt, only I'll be more blunt: Hell No!

Rather than waiting for a "crash", it would be better to wait until you can actually afford what you propose. Underfunded people who attempt stuff like this are exactly the folks who lose when the market dumps.

BTW, all the box stores offer free classes, and they don't check for home ownership at the door. There are even some junior colleges that offer classes, and there's always volunteering for Habitat for Humanity. There are also non-profits that offer low-cost classes and workshops. All are virtually free ways to learn, especially compared to the path you're proposing. Learn, save, then buy.

Also, take a dive into this thread before you begin. Understanding this concept could also save you a bundle:

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/

This.

dd564

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Re: In A Pickle
« Reply #12 on: February 19, 2020, 08:23:38 AM »
Let me put this into a clearer picture. I am 24 Y/O with a stable job and want to break into RE & landlording.

I've ran the numbers several times. It will work. Perhaps I am nervous about buying (from what we know) as a peak.

Option A: Buy duplex & rent out other half while paying roughly $400 to cover mortgage out of my own pocket.

Option B: Buy SFH, rent 2 rooms out to brothers (1 will be receiving military housing assistance) and charge myself extra to fund a new down payment for when the crash actually happens. In this case mortgage = $1100 with Income= $2200. I keep hearing about deals being made at purchase. In this market, it worries me.

Option C: Screw it all and keep renting and saving to use 20% conventional at next crash.

I do not care if "I do not have adequate resources" but am more interested in how I will make it work.

@clarkfan1979 Would you ever buy at a market top if you had the same thoughts that home prices & rents will continue to increase? Perhaps I just need to take action.

What priced SFH are you looking for?
What rent amounts are you looking to get?


MayDay

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Re: In A Pickle
« Reply #13 on: February 22, 2020, 08:02:25 PM »
I'm in the twin cities. My coworker (similar age as you) looked for a duplex for over a year before giving up and buying a SFH and renting a room to a friend.

Duplexes seem fairly rare and overpriced around here. I'd consider the SFH plan depending on area. If you can find an entry level priced one and do some work you should be in good shape. Yes the cost of entry level has gone up so make sure you are ok staying for awhile if the market turns.

We bought our first house in the twin cities in 2005 and lost 60k. Yes it sucked bit we had paid it down ~70k so we weren't stuck in it. You just need to be aware that real estate doesn't always go up and have a plan to deal with that.